Learning risk management from engineers

Use partnerships, red teams, early starts and contingency plans

By Dan Carrison

There seems to be an impression shared by the general public – and perpetuated by business journalists – that rather diminishes the successes of the engineering community. We seem to believe that engineers are able, through their complex calculations, to so minimize risk that the outcome of a major new enterprise is never in doubt. We imagine that the odds against the success of a space launch or the construction of a towering skyscraper or the linking of two cities by a bullet train have been rendered statistically irrelevant by far-seeing designers who can factor into their equations every possible contingency. So we are not unduly impressed when one of our rockets, at the end of a five-year, 2 billion-mile journey, lands on a tiny asteroid whizzing through space. It was simply a matter of calculus. The big brains at NASA were able to plot intersecting, predictable paths. All in a day’s work.

But if the truth were to be known, the quiet, plodding engineering community – which is often unpardonably modest – frequently takes risks that would make swashbuckling entrepreneurs shake in their boots. In a way, the boldness of engineers is even more admirable because the daunting probabilities of failure are well-calculated and known in advance. Nevertheless, they often have no choice but to risk it all.

Examples of aggressive risk management from three premier organizations follow. It may be that those of us who are not highly technical and who are not engaged in building rockets and skyscrapers can learn from these engineering departments.

Partnering with your adversary

It is no accident that the engineering community is thought of as conservative: One wants to minimize as much risk as possible when submitting to the unpredictable whims of nature and chance. Furthermore, a conservative philosophy tends to be reinforced by systems of checks and balances that have evolved over time in order to manage risk.

In the construction industry, one of the ways to reduce the owner’s liability is to put the architect and the general contractor in an adversarial relationship. The architect is hired by the owner to design his or her vision. Throughout the long project, the architect remains an advocate of the owner, keeping a watchful eye on the general contractor so that all is done according to plan. This venerable arrangement has served the building industry well over the generations. The only problem is, it can be quite time-consuming to adjust to the unanticipated – and then to issue the more profitable “change orders” dear to the heart of every general contractor.

When Turner Construction won the contract for the new Denver Broncos football stadium – as general contractor – its management team didn’t know whether to laugh or cry: The deadline set by the owner seemed very aggressive. The architects at HNTB, a sporting arena architectural firm, were equally concerned. The owner wanted his stadium ready for Monday Night Football in less than three years, at a “mile high” job site location noted for unpredictable weather.

Both organizations could see that the venerable, adversarial relationship between architect and general contractor threatened to take up too much time on this “fast track” project. So Turner and HNTB considered an unprecedented solution: building the stadium as it was being designed. In other words, Turner would complete step one while HNTB was designing step two. It would be a joint venture, the first ever “design-build” relationship on a project of this size.

This meant, of course, that the architect no longer would represent the owner; it would partner with Turner in the interests of expediency. It also meant that Turner could not capitalize – as general contractors are wont to do – on the “errors and omissions” of the architect. The profitable change orders that general contractors rely on to offset their aggressive bidding were not going to be issued because of errors and omissions. If HNTB made a mistake, Turner would have to eat it. And that is why you rarely see design-build partnerships between the general contractor and the architect. It’s about as risky as it can get.

Don’t wait for the starter’s gun

The contract for the new football stadium was contingent upon a pending referendum to be decided by the Denver taxpayers, who would give their thumbs-up or thumbs-down on the proposed bond issue. Turner wouldn’t know for sure whether it really had a stadium to build until the results of a special election were in, and that was months away. The outcome was by no means certain. Many proposed stadiums are voted down by bond-weary citizens. In fact, a proposed stadium for San Francisco recently had been rejected by the voters, and the St. Louis Cardinals stadium-referendum had been defeated twice.

And it was not as if fans of the Denver Broncos were clamoring for a new sporting arena; they loved their existing venue. Mile High Stadium was an NFL shrine with a glorious history. Tickets were sold out every season. And every day, letters to the editor questioned the need for a new expensive football stadium that didn’t even offer more seats.

Even though the outcome of the special election was very much in doubt, Turner could not wait months before it began work if it was to meet the owner’s aggressive deadline. So the management team decided to proceed without the authorization of the voters – right up to election eve – and then abide by the will of the people. All of the time and money spent on mobilization and preparation very well could have been for naught.

Don’t wait for expected conditions

Thankfully, the referendum for the new stadium narrowly was approved by the voters of Denver. Turner’s gamble had paid off; the company hadn’t lost valuable time by waiting for the election results. Actual construction could begin.
That’s when the Turner management team had the shock of its life.

The city of Denver had not completed the necessary transactions with the various owners of the land parcels necessary for the new stadium. In fact, access to nearly three-quarters of the job site footprint was denied to Turner until the various titles had transferred. They were told that the process could take months.

Once again, the Turner team found itself in an untenable position. If they waited, the deadline would be impossible to meet. But how to begin? Football stadiums always have been constructed as complete “ovals,” slowly rising out of the ground as one recognizable shape. In this unprecedented situation, three-quarters of the “oval” could not be built.

Turner’s management team decided it simply could not wait. It would design and build the stadium in a radically different way – not as an oval, but as a series of interconnected high rise buildings. This way, they could start immediately on the little patch of land that was theirs free and clear. Hopefully, by the time they were done with that segment, more land would become available as titles transferred.

No stadium had been constructed in such a manner before. It was like baking a pie one succulent piece at a time. This risky approach would not have been possible if Turner had not taken the earlier risk of partnering with the architect. Otherwise, the Turner team would have been given blueprints to build the stadium in the traditional manner, as an oval, and would have had to wait for all the land to become available.

Turner’s example of forward management on this unpredictable construction project may illuminate a path for the rest of us, who also must deal with unwelcome surprises. If we are told, for example, to wait until our project receives official sanction, we still can be proactive under the radar. If we find ourselves pressed for time, we might consider joining hands with a traditional adversary – supplier, vendor or customer – and working in common cause. And if we are inhibited from implementing our complete master plan, we can, like the Turner engineers at the restricted stadium job site, begin where we stand.

Boeing offers the FAA a challenge it couldn’t refuse

The airline industry in general abhors the R-word. “Risk” does not exist in its public vernacular. Passengers are to feel that hurtling through the air at 35,000 feet is no different than sitting in their favorite living room chair (except for the leg room).

But Boeing took a considerable gamble in its race to deliver the world’s first 777 airliner to United Airlines.

United Airlines, about to order a fleet of new airplanes for the 21st Century, had considered three proposals – from Airbus, McDonnell Douglas and Boeing. Boeing’s 777 was at the time a paper plane in the sense that it existed only on blueprints; the other two competing models were already in service carrying passengers. That gave Airbus and McDonnell Douglas a distinct advantage: The UA evaluators could go for rides as they considered which plane to choose.

Of course, the Boeing plane would be newer, and that salient fact helped offset its competitive disadvantage. But with new planes come time-consuming challenges. The twin engine 777 would have to be certified by the FAA for transoceanic flight. “Not to worry,” the Boeing execs told their counterparts at United Airlines, “we’ll have ETOPS (extended range twin engine operation) certification in time.” UA relied on this promise as it placed its order – and actually scheduled the anticipated plane’s into its transoceanic operations five years hence.

Five years may sound like an adequate span of time to build an airplane, considering that the 737, 757 and 767 had taken about that long to design and build. But the 777 represented a complete departure from Boeing’s traditional design methodology. Instead of plywood mock-ups strung with miles of electrical wiring, the Boeing engineers would employ a brand new, powerful software program called CATIA – and nobody really knew at the time if the learning curve required for its use would help or hinder the project. Some internal Boeing estimates called for a million hours of training on the software program alone.

Once the plane finally rolled out of the hangar, it would have to undergo the lengthy ETOPS certification process – which, in itself, could take years. Frustratingly, FAA certification traditionally has been awarded incrementally. A new twin engine airplane, for example, would be – after months of incident-free flying time – granted permission to fly 60 minutes away from the nearest alternate airport. Many months of flight-time later, the plane would be certified to fly 90 minutes away – and, months later, two hours away – from the nearest alternate airport. Clearly, this interminable process could prevent Boeing from making its promised delivery to United Airlines. The Boeing engineers had to find a way to make a risk-verse, notoriously conservative FAA agree to a faster certification process.

So the engineers at Boeing offered the FAA a challenge it simply couldn’t refuse. They offered to put a new 777 through a scrupulously monitored torture test that would incorporate – and exceed – all of the demanding FAA certification protocols into a dramatically compressed timeline. They would dedicate a 777 to a nonstop 1,000 cycle test, comprising takeoffs, flight time and landings. Additionally, they would run two engines on the ground, nonstop, through a 3,000 cycle test.

The FAA had nothing to lose. If the new Boeing jet could pass the far more rigorous test, it would deserve certification. If it couldn’t, that was Boeing’s problem – the company would have to start all over again and comply with the traditional ETOPS program. And there was much to gain from the FAA’s perspective, whether the jet passed or not: The flight data streaming out of the unprecedented, compressed endurance test would be fascinating.

Fortunately for Boeing, the 777 passed with flying colors. But the gamble taken by the Boeing engineers is instructive for all of us who must deal with agencies – and with customers – that do not necessarily share our sense of urgency. We, too, can say, in so many words, “If our product can do this, would you approve it?” As long as it is clear that time is the only factor we want to affect and that the agency’s (or customer’s) actual requirements would be exceeded, how can they lose? The risk is ours. Needless to say, we must have great confidence in our product to make such a daring proposal.

NASA sends in a red team

The engineers at Jet Propulsion Lab live with risk. Their field of operations is, of course, outer space, the most hostile environment imaginable. Their “customer” is Mother Nature – implacable and unforgiving. Each space probe is totally on its own. Resupply is impossible. Each instrument package is one of a kind; there is, generally speaking, no legacy of manufactured parts to rely on. And each mission to a distant planet is against the odds: Nearly 60 percent of all missions to Mars (including the Russian attempts) have failed, despite having the backing of the greatest scientific minds to be found on Earth.

When the engineers at JPL planned the Odyssey Orbiter mission to Mars, it was on the heels of two well-publicized failures. The Mars Climate Orbiter dipped too deeply into the planet’s atmosphere and burned, while a software glitch on Mars Polar Lander cut its rocket-assisted descent prematurely, causing it to crash to the surface. If the Odyssey mission failed, it would have been strike three for JPL. Not only might future funding be imperiled, but other agencies competing with JPL for the next NASA mission might have been given their chance.

So, in an effort to minimize the risk, NASA sent a “red team” to JPL.

A red team is a mobile review board of experts looking for trouble. Their task was to examine every aspect of the Odyssey Orbiter mission plan in order to identify design flaws – and to report their findings upline to NASA.

As one might expect, the eager beaver Odyssey team members were not particularly thrilled by the arrival of an independent review board that questioned the results of thousands of hours of painstaking planning. The red team members were dispassionate; they could not be “sold” by enthusiasm or cajoled by the camaraderie of fellow rocket scientists. The facts had to speak for themselves.

However, the initial resistance of the Odyssey team members soon dissipated. They realized that the questions being asked of them were intelligent, insightful and fair-minded. The process seemed honest. And, it became clear that the members of the red team shared their goal of a successful mission. After all, NASA did not want to have to explain to the public the cause of yet another failed Mars mission costing the taxpayers hundreds of millions of dollars.

As it turned out, NASA’s red team and JPL’s Odyssey team members developed a lasting respect for one another. The review process had been helpful and confirming. The red team did identify one or two areas of concern and, as tasked, reported the findings to NASA. But the Odyssey team members had a chance to make the case for their approach. NASA, after having listened to “both sides,” was in a much more informed position to make a judgment. It sided with the Odyssey team. Months later, the Odyssey Orbiter successfully entered the orbit of Mars – and to this day transmits invaluable information to the scientific community.

NASA’s point-counterpoint system of review is analogous to a city government employing both a district attorney and a public defender to try the same case, each doing her best with the identical evidence. In theory, justice should prevail. It is not difficult to imagine this model applied to more familiar business enterprises. In order to review a major corporate project before it is “launched,” senior management can send in a red team. Later, it will listen to the red team and to the original advocates of the project, both sides having the identical goal – a successful enterprise – in mind. The final decision may not be an easy one, but it will be an informed one. Senior management will have done its best to manage risk.

Conclusion

It has been shown that engineers sometimes manage risk by assuming risk, just as firefighters often fight fire with fire by igniting a back-burn. Sometimes the choice is stark: Take on some risk now or face even greater risk later in the project. This kind of aggressive, forward management could serve “the rest of us” well in any industry.

Dan Carrison, a business writer and consultant, has authored or co-authored four management books – Semper Fi: Business Leadership the Marine Corps Way, Deadline! How Premier Organizations Win the Race Against Time, Business Under Fire and From the Bureau to the Boardroom. Carrison is a general partner of Semper Fi Consulting and teaches corporate communication for the University of La Verne. He also writes the “21st Century Management” column for Industrial Management, another IIE publication.